Post-Earnings Dip Highlights Cleveland-Cliffs' Fragile Turnaround Amid Tariff-Dependent Upside

What happened

Cleveland-Cliffs' recent earnings report precipitated a stock price decline, underscoring persistent investor skepticism despite management's upbeat narrative on long-term prospects. The company has achieved sequential EBITDA improvement in 2025 through aggressive cost cuts and facility idlings, yet fundamentals remain precarious with negative operating cash flow and net debt of approximately $7.7 billion. Long-term upside hinges on successful execution of turnaround plans, including Stelco synergies and multi-year auto contracts, coupled with sustained tariff protections that insulate domestic pricing. However, the DeepValue report indicates that current valuations already discount a recovery, while real risks like high leverage and cyclical demand could derail progress. Without demonstrable, sustained positive cash flow and net debt reduction, the bullish case remains speculative and unproven.

Implication

Investors should prioritize monitoring upcoming quarters for clear signs of positive operating cash flow and deleveraging, as these are critical to validating the turnaround thesis. Key near-term catalysts include closing non-core asset sales, achieving EBITDA above $1 billion, and maintaining auto contract renewals without price concessions. Failure to meet these milestones could exacerbate balance sheet stress, potentially leading to further dilution or a downgrade to the bear scenario. Conversely, successful execution might drive shares toward base or bull valuations, but macro volatility and policy dependence heighten uncertainty. Therefore, adhering to a 'WAIT' rating with re-assessment in 6-12 months offers a prudent risk/reward balance until financial stabilization is evident.

Thesis delta

The Seeking Alpha article emphasizes long-term upside masked by the post-earnings dip, aligning with the DeepValue report's acknowledgment of recovery potential if cost cuts and tariffs persist. However, this does not shift the core thesis: CLF's current price already reflects optimistic scenarios, and the lack of sustained positive cash flow with high leverage necessitates a patient, evidence-based approach. No fundamental change is justified until concrete progress on deleveraging and cash generation emerges, reinforcing the 'WAIT' recommendation.